Q&A Forum

Grant accounting

I just began working with a biotech company with siginificant grant revenues and reimbursements. I am looking for any good materials or sites to review proper recognition and other grant accounting isses for R&D and other grants.

Answers

I assume that you have thoroughly reviewed the grant accounting documents and the relevant circulars. There should be a GOTR technical resource assigned by the granting agency who should be a big help. Online resources include:

The best place to start for revenue recognition is the FASB Accounting Standards Codification (http://asc.fasb.org/viewpage). ASC Section 605 addresses revenue recognition, and sub-section 912 specifically addresses revenue recognition for Federal government contractors. Keep in mind, however, that the FASB and IASB will soon be issuing a new joint statement on revenue recognition and all the revenue recognition rules as we currently know them are about to change.

Most grants are on a cost reimbursement basis; if so, you have to know the Federal regulations on allowable (and unallowable) costs. The best place to start to learn these regulations is with the DCAA publication “Information For Contractors”, which can be found at http://www.dcaa.mil/dcaap7641.90.pdf. Pay particular attention to the discussions in how indirect rates (i.e., overhead rates) are built. The examples in chapter 6 are very useful in understanding the composition and buildup of indirect rates.

However, this guide is not sufficient by itself. In many cases, you have to know the specific Federal Acquisition Regulations (FAR) clauses relevant to your contract. Most Federal agencies have their own supplements to the FAR, and the FAR clauses and the agency supplemental clauses (if any) applicable to each grant will be specified in the contract documents. Further, different agencies have different practices; for example, DOD allows reimbursement of independent research and development costs in indirect rates, but the NIH does not. DOD also allows fees (profits) to be added on top of total costs, but the NIH does not in most cases – but will allow fees for qualified small businesses for SBIR grants.

Reading all of the grant documents and applicable FAR clauses (or for the NIH, the NIH Grants Policy Statement) and understanding them takes a substantial investment of time. However, if you don’t, you really don’t know if the company’s accounting is correct. If there is already someone at the company who is knowledgeable about their grants and applicable regulations, spend some time with them to at least get an overview of what is relevant to them. Don’t assume that all grants from the same agency have the same requirements; requirements can vary, sometimes significantly, from grant to grant.

Finally, as you read the grant documents, pay attention to reporting requirements. Some grants have very few reporting requirements, while others may require monthly, quarterly, and annual reports to the applicable agency. The costs of failing to report or reporting improperly can be steep, while fully complying will pay off in the long run, as it will make it easier to get funding for amendments, options, and subsequent or follow-on grants.

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